St George Economics economy and finance update

The US stockmarket weakened on Friday night, with mixed US economic data failing to quash speculation about tapering of quantitative easing, which would be negative for stocks.

The Dow and the S&P 500 both fell 1.4% and the Nasdaq was off 1.0% for the session, with these indices also ending the week on a softer note.

Bonds:

Despite the stockmarket weakness, US government bonds edged lower at the long end (yields rose slightly) as expectations of Fed QE tapering continued.

Foreign Exchange:

The US dollar gained ground against the Aussie dollar and the other major currencies on speculation about tapering of quantitative easing in the US.

The Euro weakened versus the Aussie dollar and the US dollar with economic data showing an increase in the Euro zone unemployment rate weighing on Euro sentiment.

Commodities:

The oil price fell to a one-month low after OPEC left its production target unchanged at 30 million barrels a day.

The gold price weakened amid ongoing speculation about the possibility of the Fed tapering quantitative easing.

Australia:

Private sector credit had another month of subdued growth, rising 0.3% in April.

Annual growth stepped down from 3.2% to 3.1% in the year to April, and remains at a tepid pace, particularly given interest rates are at very low levels.

The pace of credit growth continues to indicate an unwillingness to increase leverage across both businesses and households.

China:

The manufacturing PMI was stronger than expected in May, rising to 50.8, from 50.6 in April. The reading above 50 signalled further expansion in manufacturing.

Comments from China's President on Friday were encouraging. Xi Jinping said China's expansion is on a "more stable footing."

Europe:

The Euro zone unemployment rate rose to a record high of 12.2% in April, from 12.1% in March.

By country, the unemployment rate ranged from 4.9% in Austria to 26.8% in Spain (and Greece's unemployment rate has not yet been published for April, but was 27.0% back in February).

Euro zone CPI inflation rose to 1.4% in the year to May, from 1.2% in the year to April, with higher food prices driving the increase.

Japan:

National CPI fell 0.7% in the year to April, indicating that Japan is still far from getting out of deflation, although rate of decline in prices eased from an annual decline of 0.9% in the year to March.

Embedded deflationary expectations will take time for the Bank of Japan to shake off after two decades of deflation.

The jobless rate was steady at 4.1% in April, but the jobs-to-applicants ratio rose to 0.89 the highest since June 2008.

This points to greater availability of jobs, and provides a positive sign of the economy improving.

Industrial production rose 1.7% in April, stronger than expectations for a 0.6% rise.

The annual rate of growth however, remains in decline at -2.3% in the year to April, although this was an improvement the 6.7% decline in the year to March.

New Zealand:

The terms of trade rose 4.1% in the March quarter, the first increase in nearly two years. Export prices rose on higher prices for dairy, while import prices fell.

The ANZ business confidence index rose from 32.3 to 41.8 in May indicating that more firms are optimistic about the outlook.

United Kingdom:

The GfK consumer confidence survey improved from -27 to -22 in May, the highest in two years.

UK mortgage approvals were little changed in April, rising to 53.7k, unchanged from the upwardly revised 53.7k result in March (previously reported as 53.5k).

United States:

Personal income was unchanged in April, after rising an upwardly revised 0.3% in March (previously reported as a 0.2% increase).

Personal spending fell 0.2% in April, after rising a downwardly revised 0.1% in March (previously reported as a 0.2% increase).

Michigan consumer confidence rose to 84.5 in May, from 76.4 in April. This was its highest level in six years, with a recovery in the housing market and stockmarket gains supportive of sentiment.

The Chicago PMI was stronger than expected, rising to 58.7 in May, from 49.0 in April. This was its highest level in a year and the increase was the largest since 1983. The Milwaukee NAPM fell to 40.67 in May, from 48.43 in April.